Market Mayhem · Episode 17 · March 2022 · London
The Nickel Squeeze
The Day the London Metal Exchange Cancelled Billions in Completed Trades
Nickel +250% in two trading days. The largest commodity move in modern history. Then the exchange cancelled the trades, and the most controversial decision in 145 years of LME history began.
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On the morning of March 8th, 2022, nickel on the London Metal Exchange reached $101,365 per tonne. Two days earlier it had been $29,000. A 250% move in 48 hours, the most extreme commodity price spike in modern history.
The cause: Xiang Guangda, founder of the world’s largest nickel producer, had built a massive short position. Russia’s invasion of Ukraine sent commodity prices surging. The short squeeze that followed was mechanical and total. Covering the position drove prices higher, which required more covering, which drove prices higher still.
The LME’s response was unprecedented in 145 years of operation: it cancelled all nickel trades executed between midnight and 8:15 AM London time on March 8th. Billions in completed transactions. Legal contracts between willing buyers and sellers. Made to have not happened.
The question that has never been fully answered: when an exchange cancels completed trades to prevent systemic failure, does it protect the market, or destroy the integrity that makes the market worth using?
The Crisis at a Glance
| Data Point | Detail |
|---|---|
| Event | LME Nickel Squeeze, extreme short squeeze and unprecedented trade cancellation |
| Nickel Price (March 4) | ~$29,000 per tonne |
| Nickel Peak (March 8) | $101,365 per tonne, 250% rise in 2 trading days |
| Short Seller | Xiang Guangda (“Big Shot”), founder of Tsingshan Holding Group, world’s largest nickel/stainless steel producer |
| Short Position Size | Estimated 100,000–200,000 tonnes, among the largest commodity short positions in history |
| Trigger | Russia’s invasion of Ukraine (Feb 24, 2022). Russia is a significant nickel producer; supply fears sent prices surging |
| LME Decision | Cancelled all nickel trades executed between midnight and 8:15 AM on March 8, the first such cancellation in LME’s 145-year history |
| Market Suspension | 8 trading days, the longest suspension of nickel trading in LME history |
| Legal Challenges | AQR Capital, Elliott Investment Management, and others filed lawsuits; cases proceeded through English courts for years |
| LME CEO Outcome | Matthew Chamberlain resigned December 2022, citing pressures of his tenure including the nickel crisis |
| Historical Parallel | Hunt Brothers silver crisis (1980), COMEX changed rules mid-position; same structural question about exchange integrity |
| M·M·M Lesson | Money — position concentration creates systemic risk. Method — exchange risk is a real risk class. Mind — understand who controls the infrastructure you depend on. |
Xiang Guangda and the Biggest Short in Commodities
Xiang Guangda is the founder of Tsingshan Holding Group, the world’s largest producer of stainless steel and nickel products. He built his short position on a coherent industrial thesis: Tsingshan had developed a new, low-cost process for producing battery-grade nickel, which he believed would flood the market and drive prices down from the elevated levels created by EV battery demand.
The thesis was not irrational. His production capacity was real. His cost advantage was real. The technology worked. If nickel supply expanded as rapidly as his plans suggested, prices would come under pressure. The problem was the size of the position and the timing.
His short, spread across multiple entities to circumvent LME position limits, was estimated at between 100,000 and 200,000 tonnes. At pre-crisis prices, billions of dollars in exposure. When Russia invaded Ukraine on February 24th, 2022, and commodity supply fears sent nickel surging, Xiang’s position began losing money at extraordinary speed. Margin calls arrived. To cover, he had to buy back contracts at rising prices. His buying drove prices higher. Higher prices triggered more margin calls. The short squeeze feedback loop, identical in mechanics to the silver squeeze of 1980, ran to its extreme conclusion at $101,365 per tonne.
The Decision: An Exchange Cancels Legal Trades
The LME’s justification: the price move had been so extreme and so rapid that it threatened the clearing system itself. Clearing members, the firms guaranteeing trades, were facing margin calls they might not be able to meet. If clearing members defaulted, all market participants faced losses on all their positions, not just nickel. The cancellation was framed as systemic protection.
The counter-argument: the LME had no legitimate authority to cancel completed legal transactions; the decision specifically protected Xiang Guangda from the consequences of his own recklessness; the LME, acquired by Hong Kong Exchanges in 2012, had protected Chinese commercial interests over Western trading firms; and the cancellation fatally undermined confidence in the LME as a reliable market.
Hedge funds filed lawsuits. The LME’s independent review found multiple failures in risk management that had allowed the position to grow to the scale it reached without adequate monitoring. Trading volumes in LME nickel dropped dramatically as market participants migrated elsewhere. The CEO resigned. The questions about the legitimacy of the cancellation were litigated for years without definitive resolution.
Xiang Guangda and Tsingshan survived. A standstill agreement with their bank creditors gave them time to reduce the position through physical delivery as prices normalised. Big Shot remained in business.
What This Means for You as a Trader
💰 MONEY — Position Concentration Creates a Different Risk Class
When a position is large enough to affect the market’s ability to function normally, it carries risks that normal market risk models don’t capture. The risk is not just that the trade goes against you. It is that the market structure changes in response to your position. Xiang Guangda’s short was so large it threatened the clearing system, which triggered the exchange intervention that destroyed his position in a way no price model could have predicted. At every scale: positions that are large relative to the instrument’s liquidity carry this structural risk. Know the open interest you’re trading against. Know what percentage of it you represent. The bigger the share, the greater the risk of triggering rule changes.
📊 METHOD — Exchange Risk Is a Real Risk Class
Most traders model market risk, liquidity risk, and credit risk. Very few model exchange risk: the exchange changing margin requirements, suspending trading, imposing price limits, or cancelling completed trades. The LME nickel cancellation. COMEX silver rules in 1980. Hong Kong market closure in 1987. All three are examples of exchanges changing the rules while participants held positions premised on the existing rules continuing to apply. These events are rare. They are not impossible. Any trading strategy that would be destroyed by exchange rule changes without warning is carrying unmodelled risk.
🧠 MIND — Who Controls the Infrastructure You Depend On?
The traders who lost profits in the LME cancellation had relied on the exchange to honour completed contracts. The exchange chose not to, under extreme circumstances. They had recourse only through years of expensive litigation with uncertain outcomes. In any trading environment, exchange-traded, OTC, or decentralised, understand who has the power to change the rules, under what circumstances they might exercise it, and what your position looks like if they do. The LME is not uniquely susceptible to this. Any exchange, clearing house, or protocol can face a moment of crisis severe enough to trigger emergency intervention. No institution is beyond this possibility at sufficient scale of stress.
Frequently Asked Questions
What is a short squeeze and how did it operate here?
A short squeeze occurs when a heavily shorted asset rises in price rapidly, forcing short sellers to buy back their positions to limit losses, which drives the price higher still, which forces more covering. Xiang Guangda’s nickel short was so large relative to the market’s open interest that his buying pressure, required to cover the position as margin calls arrived, was itself a primary driver of the price movement. Every tonne he bought drove the price higher, increasing the cost of covering the remaining position. The feedback loop is self-reinforcing and, in extreme cases like this, can move prices to levels that are entirely detached from fundamental supply and demand. The silver squeeze of 1980 operated identically, just with different protagonists and a different commodity.
Was the LME’s decision to cancel trades legal?
The LME’s rules do give it emergency powers to suspend trading and take steps to protect market orderliness. Whether those powers extend to the retroactive cancellation of completed trades was the central legal question in the subsequent litigation. The English courts ultimately upheld the LME’s decision in the judicial review brought by hedge funds, finding that the LME had acted within its emergency powers. However, the courts also found that the LME had not acted unlawfully in its decision-making process. This does not mean the decision was right. It means it was not illegal. The distinction between legal and fair is relevant here: the trades were cancelled legally, but the traders who lost their profits experienced it as profoundly unfair, and that experience has had lasting effects on the LME’s reputation.
How does this compare to the Hunt Brothers silver crisis of 1980?
The structural parallels are striking. In both cases: a single large actor accumulated a position so large it threatened the market’s integrity; a major commodity exchange changed its rules mid-position in ways that specifically harmed the large short (Hunt Brothers) or the large long positions held against it (nickel 2022); legal challenges followed; and the exchange’s reputation for rule consistency was damaged. The key difference is directional: the Hunts were long and the COMEX protected the shorts by restricting new buying; Xiang was short and the LME protected the shorts by cancelling trades that had gone against him. In both cases, the exchange prioritised systemic stability over contractual sanctity. In both cases, the question of whose interests the exchange was actually protecting was asked and not cleanly answered.
Why does Russia’s nickel production matter so much?
Russia is one of the world’s significant producers of high-grade nickel, the type suitable for EV battery cathodes. Norilsk Nickel, a Russian company, produces roughly 7–9% of global nickel output and a larger share of the high-grade product. When Russia invaded Ukraine and Western sanctions were imposed and expanded, the market immediately priced in potential supply disruption. Even if Russian nickel was not immediately sanctioned, the logistics of moving it, insuring it, financing it, and selling it to Western buyers became dramatically more complicated. The initial price spike reflected this uncertainty, and the short squeeze dynamic amplified it into the extreme move that triggered the LME’s intervention.
What happened to LME nickel trading after the crisis?
Trading volumes declined substantially and took years to recover. Many market participants who had previously used LME nickel as a benchmark or hedging vehicle migrated to alternative venues or reduced their exposure to LME-traded metals generally. The LME implemented price limits, circuit breakers restricting daily moves, which had the effect of creating more orderly trading but also reducing the LME’s appeal as a venue for large institutional trades that required rapid execution at any price. The exchange’s ownership by Hong Kong Exchanges and Clearing continued to raise questions about whether the institution’s decision-making in a crisis would prioritise London-based trading participants or Chinese commercial interests. These questions did not have definitive answers, but they affected market participants’ confidence in the institution.
What is the practical implication for commodity traders?
Never hold a position so large, relative to the market’s open interest, that your own covering activity would materially move the price. This is both a market risk (you can’t cover at the price you expect) and a regulatory risk (your position size may attract exchange intervention). For all exchange-traded positions: understand the exchange’s emergency powers. Read the rules about what the exchange can do when orderly trading is threatened. Know that “the exchange will honour my contract” is a statement that is almost always true and occasionally not true. Size your positions such that you can survive the occasions when it is not.
Continue the Market Mayhem Series
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Market Mayhem is a historical education series produced by The Complete Trader’s Edge. All figures are sourced from historical records. Content is for educational purposes only and does not constitute financial or investment advice. Trading involves significant risk of loss.
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